No Excise from Sept. 16, 2016 on goods other than Petroleum & Tobacco Products

[Priyesh Agrawal]

On September 16, 2016, The Government vides its Notification dated 16/09/2016 had brought in effect all the sections of Constitutional (One Hundred and First Amendment) Act, 2016 to effect, which will result in rolling out of Goods & Service Tax (“GST”). It is a welcome step and shall be appreciated.

However, this article is to bring out the other effects of the amendments, which is a result of negligence. As per the view of author, The Duty of Excise shall be now levied on production or manufacture of only petroleum or tobacco products and not on all the goods. This would be with effect from 16/09/2016. Thus the article is based on the interpretation of Author and his views on Constitution Amendment.

 Article 265 of The Constitution of India (“COI”) provides that no tax shall be levied or collected except by the authority of law. Further Article 246 makes a clear division of power between Centre & State as enumerated in Schedule-VII of The COI.

Prior to September 16, 2016 the Duty of Excise was levied and collected by the Central Government under The Central Excise Act, 1944, which was constitutionally backed by entry no. 84 of List-I (Union List) of the Seventh Schedule of The COI, which was read as under –

“84. Duties of excise on tobacco and other goods manufactured or produced in India except-

(a) alcoholic liquors for human consumption;

(b) opium, Indian hemp and other narcotic drugs and narcotics,

but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.”

However, this entry is now standing amended by The Constitutional (One Hundred and First Amendment) Act, 2016 and would be now read as –

"84. Duties of excise on the following goods manufactured or produced in India, namely:-

(a) petroleum crude;

(b) high speed diesel;

(c) motor spirit (commonly known as petrol);

(d) natural gas;

(e) aviation turbine fuel; and

(f) tobacco and tobacco products."

Due to this amendment in the entry 84 of The Seventh Schedule of The COI, from Sept. 16, 2016, The Power of Central Government has been brought to limited extent i.e., now the Central Government has power to legislate had been curtailed and now the Central Government can only levy duty of excise on specified products. As a result of this The Central Excise Act, 1944 shall become ultra vires   to the extent inconsistent with The COI. Which means The Central Excise Act, 1944 shall remain valid/enforceable for only specified goods and on rest goods shall now be out of scope of levy of Excise Duty.

There is a counter to this, by saying that Section 19 of Constitutional (One Hundred and First Amendment) Act, 2016 provides from transitional provision, says –

“19. Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until expiration of one year from such commencement, whichever is earlier.”

For this the author would like to bring to the kind attention of the readers that the scope of this transitory provision shall be limited to the taxes levied under an act enacted by Legislature or any other authority (Eg. Municipal Corporations). It shall not cover within ambit the taxes which are legislated by The Parliament. Thus the taxes such as VAT, Entry Tax, etc. is now also constitutionally backed even after the change in List –II (State List) of The Seventh Schedule of The COI.

What would be fate of Service Tax?

The Service Tax is levied by Government under Chapter V of The Finance Act, 1994 which was legislated by The Parliament under entry 97 of The List-I (Union List) of The Seventh Schedule of The COI. There is no change made to the said entry and thus the Service Tax shall continue to be levied on Services until The Finance Act, 1994 is repealed by the Government.

Discussions to this article

[abhi panic]

Kudos to the author for this missive but sadly in an endeavour to put down the rule making powers that be he has unfortunately trampled a few basic guidelines necessary to read the law.

Usage of words like "result of negligence", "ultra vires" all seem to be used in frustration or jumping the gun without understanding the tenet of rule making.

A classic case of - missing the woods for the trees, should I say.

letting these remarks aside, the author needed to have closely studied the section 19 of Constitution (One Hundred and First Amendment) Act, 2016 which reads -

Transitional provisions.

19. Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until expiration of one year from such commencement, whichever is earlier.

The author appears to be more interested in stressing upon the words "State" and his conclusion -

"the scope of this transitory provision shall be limited to the taxes levied under an act enacted by Legislature or any other authority (Eg. Municipal Corporations). It shall not cover within ambit the taxes which are legislated by The Parliament. Thus the taxes such as VAT, Entry Tax, etc. is now also constitutionally backed even after the change in List –II (State List) of The Seventh Schedule of The COI."

Unfortunately, he should have laid emphasis on the words as shown in the Transitional Provisions viz. any provision of any law relating to tax on goods or services or on both in force in any State.

To reiterate, "any provision of any law relating to tax on goods or services or on both in force" will continue to be in force in any State even after the Constitution (One Hundred and First Amendment) Act, 2016.

So, Central Excise Act, 1944 or for that matter Finance Act, 1994 would continue to be in force.

Saying that the "Transitional provision" only deals with Act enacted by any State Legislature is to put it harshly, blasphemous.

I request that such erroneous interpretations do not at all augur well and only increase confusion amongst the trade and industry who are in any case disheartened with a complex law waiting at their doorsteps.

If this small analysis of mine is nauseating I request that the readers may also go through the General Clauses Act, 1897 and the law relating to saving of previous enactments. And by the way, State also includes Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India; includes a Union Territory in many definitions in the Constitution but all that is not required to be referred to when a careful reading of the Transitional Provision can effectively provide an answer - which is clear and unambiguous.

regards

[Priyesh Agrawal]

@abhi panic -

Brother, do read the transitiory provision once again, My focus had been on line underlined.

Transitional provisions.

19. Notwithstanding anything in this Act, any provision of any law relating to tax on goods or services or on both in force in any State immediately before the commencement of this Act, which is inconsistent with the provisions of the Constitution as amended by this Act shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until expiration of one year from such commencement, whichever is earlier.

As per my understanding - "Any Law" here refers to laws enacted by the Legislature. This is because of a reason that, the transitiory provision towards the end has specifically provided that the act shall continue to be in force unless amended or repealed by a competent legislature. In whole Constitution "Pariliament" is used to refer for The President with both houses and "legislature" is used for refering the Legislative Assembly of a State.

You need to read the transitiory provision as a whole and not in parts.

With reagrd to your definition of " State" - I think you copied it from Article 12 in Part III of Constitution Of India -

"12.In this Part, unless the context otherwise requires, “the State” includes the Government and Parliament of India and the Government and the Legislature of each of the States and all local or other authorities within the territory of India or under the control of the Government of India. "

The definition of "State" is for specific purpose i.e., for Part -III, Fundamntal Rights and the same had also been copied for Part - IV i.e., Directive Principles of State Policy. This definition shall not be extended to whole of Constitution, otherwise the use of words "Union" & "State" to differentiate between, would be of no use.

Further, I would also like to bring to your notice that Section 1(2) of The Constitution (One Hundred and First Amendment) Act, 2016 gives a power to Government to decide different dates for effecting the different provisions of the act. If whole act was to be applied at once, than what was the use of said sub-section. In hurry to implement GST all sections were notified to be effective from 16/09/2016. As per my view the section 17 of the act shall be made effective from the day when GST would finally rolled out.

Further, I also request you to please read before replying. In matter of Service Tax, I had no where said that it shall discontinue from 16/09/2016. It would discontinue only when repealed by the Central Govrenment.

Further I always said that these are my views and it depends on person to person. The copy had been forwarded to Ministry for Clarification and there interpretation is also awaited.

Lastly, I would like you to suggest that don't go by your name.

[abhi panic]

Thank you Sir for your kind words of appreciation.

For the benefit of all concerned, let me post the latest on this issue.

The Hon'ble Revenue Secretary has tweeted the following a short while back (around 10 pm, 18 September)-

"Some questions are raised about the notifications issued recently in respect of GST constitutional amendment.

We will be clarifying the correct legal position tomorrow and we will issue amendments if the need be."

Hopefully by tomorrow evening the dust will get settled.

Myself abhishek panicker and that's certainly a wonderful name.

[Priyesh Agrawal]

Abhishek bro, let be friends and connect on Facebook. I tried searching you but was unable to find you.

Let wait for positive response from government.

Thank

CA Priyesh Agrawal

[CS SANJAY MALHOTRA]

Dear Mr. Priyesh,

My submission to you is to go through Constitution since its inception as to levy of tax powers, only same would answer to your queries, whether your judgement is correct or not. Please also have look at whether the present acts have been repealed or not...

[abhi panic]

Respected Sirs,

Hon'ble Revenue Secretary has tweeted the following a short while ago -

DoR examined the validity and implications of notions dated 10th and 16th Sept wrt existing taxes imposed by the Union and states. <> There is no legal infirmity in these notifications. <> Law dept has confirmed that there appears to be no legal requirement to issue any further clarification or notification in this regard.

So, all can have a peaceful sleep for now, the author of this comment and the originator & second commentator too.

But it was a nice storm in a tea-cup.

warmest regards

abhishek panicker.

[Rakesh Chitkara]

Tax websites are invariably boring. Dry words and sentences. We lawyers have the monopoly on incomprehensible words that no one can decipher. It was therefore a delight to read Abhi Panic. English literature and flowery phrases has never been the forte of CAs - poor guys slogging through their 12-hour articleship.

Lets have more such comments to make the forum more lively. But a word of caution : this is not typical social media like Facebook or Whatsapp or Newsmedia where one hits from a safe distance by ridiculing the other guy and trashing his view point.

Respect to fellow professionals. Argue on merits. But please avoid personal affronts. There is a guy sitting behind you with better vocabulary armed with more vicious words.

And yes Priyesh jee, you jumped the gun too soon by reaching erroneous conclusions (negligence etc.) in "interpretation of Constitution". There is an ongoing war between IAS (managing GST) and IRS (being kept out from policy formulations) in the FinMin. You also got caught in their media crossfire. Nervous IRS is fighting hard to regain and retain control. Some have already started contemplating VRS. All promotions and fresh appointments are on hold because of excess staffing at Center.